[ad_1]
THE ELECTION of Joe Biden as president of the United States has drawn sighs of relief around the world, especially as his White House is expected to be a boon to the international economy.
Donald Trump’s erratic behavior in trade and currencies has hurt foreign companies and governments and done little to meet his domestic goals.
Although it is difficult to say precisely how damaging the US president’s economic agenda has been, especially with the recent Covid crisis, it has caused enough uncertainty to undermine key global relationships and institutions. One challenge for Biden will be to strengthen a multilateral framework that is in dire need of repair.
Trump started trade wars with China and the European Union, renegotiated the North American Free Trade Agreement and weakened the World Trade Organization. He repeatedly tried to lower the dollar, despite a long-standing agreement among world policy makers to avoid starting “currency wars.”
His administration rejected the International Monetary Fund, halting its efforts to provide more aid to emerging markets during the pandemic.
Far from putting the United States in a stronger position, “Trumponomics” largely fell short of expectations. The country never grew the 4% per year that Trump promised during the 2016 presidential campaign (it averaged 2.5% during the first three years of the administration).
There was no return to the sustained inflation that financial markets had initially bet on. Protectionism failed to close the United States’ trade deficit: in August, the difference between what the United States buys abroad and what it sells rose to $ 67 billion, a 14-year high, before narrowing slightly in September .
There was also little evidence of large-scale relocation of companies and jobs abroad. A recent survey by the American Chamber of Commerce in Shanghai showed that of more than 200 respondents who own or outsource manufacturing operations in China, only 3.7% were moving some production to the US.
The president’s agenda also negatively affected the private sector. CEOs had to anxiously monitor Trump’s Twitter feed, fearing it would sink his stock with some derogatory tweets.
Scott Baker, Nicholas Bloom and Steven Davis, three economists, showed that between 2018 and 2019, uncertainty in US trade policy reached its highest point since the mid-1990s.
The three authors found that more than a third of the large daily movements in the US stock market during these years were due to trade policy announcements, compared to just 0.6% in all years between 1900. and 2017.
Globally, the pandemic makes it harder to measure the impact of Trump’s economic policy. However, last year, the IMF predicted that the US-China trade war alone would cost the world economy about 0.8% of output by 2020 – roughly $ 1 trillion.
The exact contours of Biden’s economic plans remain unclear. The ability to pass significant fiscal stimulus and ease pressure on the Fed will be crucial to the post-pandemic recovery.
But the incoming US administration should also try to restore international coordination in economic policymaking. Trade and currency wars increase uncertainty and depress investment. Reversing this is crucial, given the effects of the pandemic on employment and production.
A first step is to bring trade disputes to a peaceful solution. As my colleague Noah Smith argues, this is straightforward when it comes to economies like the EU that have similar wage levels, labor standards, and environmental protection laws to the US.
The new Biden administration will also have to restore the full functionality of the WTO, after Trump emasculated his dispute settlement system. And the president-elect should refrain from lowering the dollar in an attempt to gain competitiveness for American products.
As the experience of the Trump administration has shown, this helps the trade balance little, but undermines the independence of the US Federal Reserve.
The United States may want to lead the way in other areas as well, starting with the global tax system. The Organization for Economic Cooperation and Development is spearheading efforts to reduce tax avoidance, particularly from multinational corporations.
But these have been undermined by the American opposition. As Maurice Obstfeld, former IMF chief economist, has argued, the United States should advocate for the completion and adoption of the OECD process, which would help restore faith in globalization.
Finally, the United States will need to engage more constructively with the IMF. Many low- and middle-income countries look to the bottom for support as the global slowdown hits their finances.
The White House will need to consider increasing the size of the IMF’s firepower to boost lending and working with it to simplify debt restructuring procedures for countries at risk of becoming insolvent.
For the past 75 years, the United States has been the guardian of the international economic and financial architecture. The world is ready for the country to take up that role.
TThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Ferdinando Giugliano writes columns on the European economy for Bloomberg Opinion. He is also an economics columnist for La Repubblica and was a member of the editorial board of the Financial Times. – Bloomberg
[ad_2]
